Sprint confirms buyout offer from Japan's Softbank

Rumored $12.8bn deal would give controlling stake

Sprint Nextel, the third-largest US mobile carrier, has confirmed that it is in talks that could result in its takeover by Japanese mobile carrier Softbank.

The Wall Street Journal was first to report on the negotiations, based on a tip by an inside source. Details of the talks were not clear, though it's estimated that the value of the deal in discussion could exceed $12.8bn.

An investment of that size would give the Softbank a controlling interest in Sprint, which currently has a market capitalization of $16.95bn.

Softbank brushed off any requests for comment on Thursday, issuing only a terse statement: "The story about SoftBank and Sprint Nextel Corporation being reported is based on speculation. We have not announced anything. We do not comment on speculation."

Later that same day, however, Sprint issued a rather more forthcoming news release of its own, acknowledging the talks and the potential impact they could have on its business:

Sprint ... today confirmed that it is currently engaged in discussions with Softbank regarding a potential substantial investment by Softbank in Sprint. Although there can be no assurances that these discussions will result in any transaction or on what terms any transaction may occur, such a transaction could involve a change of control of Sprint. Sprint does not intend to comment further unless and until an agreement is reached.

The news comes shortly after word that Sprint was considering making an offer to acquire prepaid mobile player MetroPCS, in a move that could have thrown a wrench in the recently announced merger deal between MetroPCS and fourth-place US wireless carrier T-Mobile.

Both Sprint and T-Mobile have struggled to gain ground against the more entrenched Top Two US carriers. Verizon Wireless and AT&T each have nearly twice as many subscribers as Sprint, and three times as many as T-Mobile.

But all four major US carriers are seeing overall subscription revenues decline, particularly in their top-tier unlimited plans, as customers switch to cheaper prepaid service offerings.

Seeing this trend, Sprint and T-Mobile have both moved aggressively into the prepaid market in hopes of seizing an advantage against the Top Two, which still rely more heavily on traditional subscriptions. As such, a merger with MetroPCS would be strategic for either company.

Sources close to Sprint claim it was already considering buying MetroPCS for around $8bn in February, adding fuel to speculation that it now might try to block the deal with T-Mobile.

Sprint has since put its counterbid for MetroPCS on hold, however, reportedly until it can more thoroughly examine the details of T-Mobile's offer. Some analysts have interpreted this to mean that Sprint may be setting its sights even higher, and that it now plans to wait for the MetroPCS/T-Mobile merger to close so it can bid on the combined company.

An infusion of cash from Softbank could make such a super-merger more likely. Sprint's current share price is significantly higher than it was in February, putting it in a much stronger position to acquire MetroPCS now than then. But a larger merger would still be costly, and Sprint still has its long-term network upgrade plans to worry about.

If a Softbank-controlled Sprint succeeded in acquiring the merged MetroPCS and T-Mobile, however, it would make the company a much stronger third-place contender in the US wireless market – provided, that is, such a deal passed regulatory scrutiny, which is a big "if."

The idea certainly sounded appealing to Sprint investors, though; the carrier's share price jumped more than 13 per cent on the news. ®